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No. of corrections GB Page 1 of 22
Appeal No. 131 of 2006
Before the Appellate Tribunal for Electricity (Appellate Jurisdiction)
Appeal No.131 of 2006
Dated: August 28, 2009.
Present:- Hon’ble Mrs. Justice Manju Goel, Judicial Member Hon’ble Shri H.L. Bajaj, Technical Member
IN THE MATTER OF: National Hydroelectric Power Corporation Ltd. NHPC Office Complex Sector-33 Faridabad (Haryana)-121003 …..Appellant(s)
v/s
1. Chairperson Punjab State Electricity Board The Mall, Near Kali Badi Mandir Patiala-147001 (Punjab) 2. The Chairperson
Haryana Vidyut Prasaran Nigam Ltd. Shakti Bhwvan, Sector-6 Panchkula-134109 (Haryana)
3. The Chairman & Managing Director
Delhi Transco Ltd. Shakti Sadan, Rouse Avenue Kotla Road, New Delhi-110002
4. The Chairman
Uttar Pradesh Power Corporation Ltd. Shakti Bhavan,14, Ashoka Road Lucknow-226001 (U.P.)
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Appeal No. 131 of 2006
5. The Managing Director
Jaipur Vidyut Vitaran Nigam Ltd. Vidyut Bhawan, Janpath Jaipur-302005
6. The Chairman
Rajasthan Rajya Vidyut Prasaran Nigam Ltd.(PRVPNL) Jaipur Vidyut Vitaran NigaLtd.(JpVVNL) Jodhpur Vidyut Vitaran Nigam Ltd.(JdVVNL) Ajmer Vidyut Vitqaran Nigam Ltd.(AVVNL) Vidyut Bhavan, Janpath,Jyoti Nagar Jaipur-302005 (Rajasthan)
7. Chairman-cum-Managing Director
Power Transmission Coorpn. Of Uttaranchal Ltd. (Erstwhile UPCL) Urja Bhawan, Kanwali Road Dehradun-248001 (Uttaranchal)
8. The Managing Director
Jodhpur Vidyut Vitaran Nigam Ltd. New Power House, Industrial Area Jodhpur-342003(Rajasthan)
9. The Chairman
Himachal Pradesh State Electricity Board Vidyut Bhawan, Kumar House Shimla-171004 (Himachal Pradesh)
10. The Managing Director
Ajmer Vidyut Vitaran Nigam Ltd. Old Power House Hatthi Bhatta, Raipur Road Ajmer-305001 (Rajasthan)
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Appeal No. 131 of 2006
11. Chief Engineer & Secretary Engineering Deptt., Ist floor UT Secretariat, Sector-9-D Chandigarh-16009
12, The Principal Secretary
Power Development Department New Secretariat Srinigar (J&K)
13. Central Electricity Regulatory Commission
Chandrlok Building 36, Janpath New Delhi …….Respondents
Counsel for appellant(s): Mr Sachin Datta Ms Shaila Arora Ms Lakshmi Ramamurthy Counsel for respondent (s): Mr. Pradeep Misra,for Res.1,2&4 Mr. Daleep Dhayani Mr.Manoj Kumar Sharma Mr. Suraj Singh Mr.B.Sreekumar, Asstt.Chief For CERC Mr. T.Rout, JC(Legal)
J U D G M E N T Per Hon’ble Mr. H.L. Bajaj, Technical Member
This appeal challenges the order dated May 09, 2006
passed by the Central Electricity Regulatory Commission (CERC
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Appeal No. 131 of 2006
or the Commission in short) in petition No. 47 of 2005 vide
which the Commission has determined the generation tariff in
respect of Uri Hydro Electric Project for the period from April 01,
2004 to March 31, 2009. The facts of the case are given below
in brief:
1. CERC had vide its orders dated March 10, 2005 in Petition
No. 61 of 2001 approved the generation tariff of URI HE
Project for the period April 01, 2001 to March 31, 2004
based on the Central Electricity Regulatory Commission
(Terms & Conditions of Tariff) Regulations, 2001 notified by
the Commission on March 26, 2001.
2. CERC in exercise of powers conferred under Section 178 of
The Electricity Act, 2003 and all other powers enabling in
this behalf, issued the Central Electricity Regulatory
Commission (Terms & Conditions of Tariff) Regulations,
2004 on March 26, 2004 which were effective for a period
of 5 years w.e.f. April 01, 2004.
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Appeal No. 131 of 2006
3. The appellant filed Tariff Petition of URI Generating Station
for the period 2004-09 on May 10, 2005 by annexing the
following documents to its Petition.
i) Duly filled in Forms 1 to 18 as prescribed in the
Central Electricity Regulatory Commission (Terms &
Conditions of Tariff) Regulations, 2004 notified on
March 26, 2004
ii) Details of calculation of primary energy rate for the
Financial Year 2004-05 and 2005-06
iii) Copy of M-series Loan Agreement
iv) Audited balance sheet and profit and loss account of
the URI HE Project for the Financial Years. 2001-02,
2002-03 and 2003-04
v) Annual Report of NHPC for Financial Years 2001-02,
2002,-03 and 2003-04
vi) Copies of N-series, Bank of Maharashtra, Dena Bank
and SBI, WCDL loan documents.
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Appeal No. 131 of 2006
4. CERC issued the Tariff Order on May 09, 2006. Aggrieved
by this order of the Commission the appellant has filed the
present appeal.
The appellant has sought the following relief:
1. Allow the present appeal against the order dated May 09,
2006 passed by the Central Electricity Regulatory
Commission in Petition No. 47/ 2005 and allow the
Annual Fixed Charges as given in this appeal.
2. Direct the Commission that Tariff be determined in
respect of URI Hydro Electric Project on the applicable
norms and parameters as set out in the CERC (Terms &
Conditions of Tariff) Regulations, 2004.
2. Mr. Sachin Datta learned counsel appearing for the
appellant contended that the linkage sought to be drawn
between depreciation and repayment of loan and the conclusion
reached by the CERC in the impugned order to the effect that
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Appeal No. 131 of 2006
“when depreciation recovered in a year is more than the amount
of repayment during that year, the entire amount of depreciation
is to be considered as repayment of loan for tariff computation” is
in contravention of Regulation 38(i)(f) of the Tariff Regulations.
He averred that the Commission itself in its order dated May 09,
2006 in Petition No. 197 of 2004 noticed this but
notwithstanding the same, the Commission reached this
conclusion through an interpretative process, purportedly taking
into account “equitable considerations” and for the purpose of
preventing any “manipulation” by the central power sector
utilities. Learned counsel contended that while carrying out this
interpretative exercise, the Commission has ignored that in the
case of NHPC Projects, including the Uri HE Project case in the
present appeal, the cumulative repayment upto any particular
year has always been far in excess of cumulative depreciation
(including advance against depreciation) upto the said year. He
stated that this aspect had been duly pleaded before the
Commission and that the appellant is seriously aggrieved with
the observations made by the Commission to the effect that the
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Appeal No. 131 of 2006
beneficiaries will be put to hardship if the excess amount of
depreciation is not accounted as repayment of loans. He
submitted that the Commission has not at all considered the
facts and circumstances surrounding the loan repayment by
NHPC in respect of the project in question. From the actual loan
repayment details of the project in the past, it is evident that
NHPC has been making loan repayments over and above the
amount of depreciation plus the Advance Against Depreciation
(AAD). As a result of such repayment schedule of NHPC, it has
not only borne considerable hardships in the initial years of the
project, the same has also resulted in considerable benefit for
the beneficiaries in terms of lower interest charges/AAD for
subsequent years. Because of pre-payment of loans,
depreciation amount exceeded the actual repayment in the
subsequent years. Mr. Datta stated that contention of the
Commission that: “if the excess amount of depreciation is not
taken as deemed repayment of loan for the subsequent years,
the beneficiaries will be put to hardship” is utterly paradoxical
and devoid of merit. He submitted that the Commission has not
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Appeal No. 131 of 2006
even noticed, let alone deal with the actual record of NHPC
regarding early repayment of loans. NHPC is aggrieved because
it has virtually faced “double jeopardy”: while in the first
instance bearing financial hardships in making loan repayments
over and above the depreciation amount plus AAD and later
when it got to a situation where the depreciation is exceeding the
actual repayment, CERC has assessed the situation as resulting
in financial hardships to the beneficiary states.
3. Learned counsel submitted that the Commission, in the
impugned order, has discriminated against NHPC by ignoring
the hardships faced by NHPC Projects in the initial years during
which period, as mentioned above, there are several instances of
over repayment as a result of which considerable advantage was
derived by the beneficiaries. While the Commission has
expressed its concern about the potential hardships to
beneficiaries in a situation where depreciation exceeds the
actual repayment, it has not sought to redress or even address
the hardships caused to NHPC as a result of excess repayments
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Appeal No. 131 of 2006
during the initial periods. On the contrary, the NHPC is being
made to suffer further and bear further financial hardships. He
contended that the Commission has gone contrary to its own
observations at para 21 of the impugned order in Petition No.
197/2004 to the effect that the 2004 regulations were based on
equitable considerations. In fact, the Commission has rendered
the 2004 regulations more inequitable by the above mentioned
process of interpretation. He submitted that any interpretative
exercise based on equitable considerations must take into
account all facts of the case.
4. Mr. Datta contended that the Commission has ignored the
fact that replacement of the costlier GOI loan having interest
rate ranging from 15% to 17% p.a. with the significantly cheaper
M-Series loans Bonds having interest rate of 9.55% p.a. took
much prior to the date of framing of the relevant regulations
and, therefore, there was no possibility of any manipulation by
NHPC at all. Therefore, the observations of the Commission at
para 21 of the order in Petition No. 197/2004 to the effect that
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Appeal No. 131 of 2006
the contrary interpretation “may afford opportunity to the
central power sector utilities for maneuvering their affairs in
such a manner that they contract loans in such a manner that
loan repayments, however small in amount, always remain
outstanding”, is not grounded in reality. It is a matter of record
that the project in question started commercial operation from
June 1997 and its financial package was approved much before
these years and there is no scope for manipulation in the loan
tie-up in the later years. In view of this there is no possibility of
any manipulation by the appellant. This aspect has also been
altogether disregarded by the CERC, lamented the learned
counsel.
5. Mr. Datta contended that there is an error apparent on the
face of record since there is no zero repayment in any year at all.
As such, on the face of it, Regulation 38 (i)(f) is not applicable.
This aspect has not even been noticed, let alone dealt with by
the CERC. The review order dated February 05, 2007 (which is
a common order for the Salal Tanakpur and Uri Projects)
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Appeal No. 131 of 2006
completely misses this aspect. The said order observes in the
context of the Salal HE Project (which was subject matter of
Review Petition No. 46 of 2006), as under:
“While the petitioner laid much stress on the Commission having deviated from its own Regulation in the above respect, we find that in this particular case, there is no such deviation. As per the submissions of the petitioner, there is zero loan payment during the year 2005-06. Thus, it is a case of moratorium, for which situation the Regulation clearly provides that depreciation amount for the year should be taken as the loan repayment, for the purpose of tariff. This is exactly what the Commission has actually done”
6. He contended that in the context of Review No. 47/2006
(for the Uri Project), the Commission ignored the submissions
made to the effect that there is no zero repayment in any year
and cursorily held as under:
“20. The Commission by its order dated May 09, 2006 in Petition No. 47/2005 had approved tariff in respect of Uri Hydroelectric Project for the period 2004-05. The petitioner seeks review of the said order on the similar grounds as urged in Review Petition No. 46/2006. For the reasons discussed above, review of order dated May 09, 2006 in Petition No. 47/2005 is not maintainable. However, the petitioner shall be entitled to recover an amount of Rs. 2,00,430/- incurred on publication of notices in newspapers in Petition No. 47/2005 in keeping para 18 above.”
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Appeal No. 131 of 2006
7. Mr. Datta submitted that the costlier GOI loans bearing
interest @ 14.5% were replaced by cheaper loans i.e. M-Series
Bonds with interest @ 9.55% in January, 2002 by NHPC so that
the interest on loan, which is a pass through component in tariff
gets reduced which is for the benefit of the consumers. This
exercise was done by the NHPC when the Tariff Regulations,
2004 applicable for the period April 01, 2004 to March 31, 2009
were not framed and the appellant was unaware of the fact as to
what would be the provisions of Tariff Regulations, 2004.
8. He stated that the Regulation 38 (i)(c) of CERC (Terms &
Conditions of Tariff), 2004 provides that “The generating
company shall make every effort to swap the loan as long as it
results in net benefit to the beneficiaries. The costs associated
with such swapping shall be borne by the beneficiaries. The
provision of this regulation was not existing in the tariff period
2001-04 whereas by broader vision and proper planning, NHPC
had already undertaken such exercise without any mandatory
provision in the Tariff Regulations applicable at that time and
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Appeal No. 131 of 2006
that the benefit of this refinancing of loans has been passed on
to the beneficiaries in the tariff period April 01, 2004 to March
31, 2009 as they have paid interest on loan @ 9.55% only on M-
Series bonds instead @ 15-17% on Govt. loans which would have
continued in the tariff period April 01, 2004 to March 31,2009 if
the refinancing of Government loans would have not been done
by the NHPC. As far as the statement of the Commission in the
contents of tariff order for the period 2004-05 is concerned the
respondent were already aware of this at the time of processing
of the tariff order for 2004-2009 and in the hearing also and
have never challenged this tariff order till date on any grounds.
9. Mr. Datta stated that there is a calculation error in working
out the normative repayment of loans for the year 2004-05
onwards in the impugned order as the normative repayment
during the year 2004-05 as per the formula adopted by CERC at
para 28(e) of the impugned order works out as Rs. 18645.63 lacs
and not Rs. 19288.55 lakhs as given in the order. Similar
corrections in the amount of normative repayment of loans for
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Appeal No. 131 of 2006
the years 2005-06 onwards will apply as a consequence of the
corrections in the year 2004-05.
10. Mr. Datta submitted that the following issues have been
admitted by the Commission as arithmetical mistakes and it has
agreed to rectify the mistakes in the order subject to the final
decision of this Tribunal through written submission filed on
November 26, 2007 in ATE in this appeal:
(i) Error in considering the amount of consumption
of stores and spares for the year 2002-03.
(ii) Administrative expenses- compensation of land
awarded by the district judge.
11. Mr. Misra, learned counsel appearing for the respondents 2
and 4 contended that the tariff is a complete package and one or
two elements of the same cannot be considered in isolation
unless it is shown that the generator is not getting adequate
return on equity as prescribed under the Regulations. In the
present case the appellant has not shown that during the period
2004-09 it has not received adequate return on equity and,
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Appeal No. 131 of 2006
therefore, the issues raised by the appellant may not be
considered in isolation as per provisions of Section 61(d) of the
Act. This being a basic issue, we proceed to analyse and decide
this.
Analysis and decision on Basic Issue
12. In order to advert to this basic issue we set out Section
61(d) below:
“ 61. Tariff Regulation- The Appropriate Commission shall, subject to the provisions of this Act, specify the terms and conditions for the determination of tariff, and in doing so, shall be guided by the following namely; (a)…… (d) Safeguarding of consumers” interest and at the same time recovery of the cost of electricity in a reasonable manner”
13. In a cost plus regulatory regime, tariff is to be determined
by the Commission as per the Regulations which set out inter
alia various components of tariff. The generator is entitled to
each component; Interest on Loan, Return on Equity,
Depreciation, Interest on Working Capital etc. all have to be
worked out separately. It cannot be argued that once the
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Appeal No. 131 of 2006
generator has recovered its return on equity, it may be denied
interest on loan admissible as per the Tariff Regulations. In view
of this we are not able to agree with the aforementioned
contention that the tariff is a complete package and the
appellant cannot agitate one or two elements of the tariff if it has
recovered adequate return on equity. Issues raised by the
appellant may not be considered in isolation.
14. Mr. Misra contended that the appellant himself in Form No.
8 has given the period of moratorium and the date which has
become effective. Form No. 13A submitted by the appellant to
the Commission regarding calculation of interest on loan inter-
alia gives details of actual repayment and normative repayment
of loan which shows that no repayment was made during the
year 2005-06 and therefore, this period was rightly held by the
Commission as moratorium period.
15. Mr. Misra submitted that the issue of errors in calculation
of loan amount, depreciation etc, if found prima facie incorrect
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Appeal No. 131 of 2006
by this Tribunal, the same may be referred to the Commission
for re-computation of the same.
16. Mr. Misra contended that the benefit of swapping of the
loan amounting to Rs. 1378.58 lakhs which was refinanced with
M-series Bonds has not been passed on to the beneficiaries and
therefore the appeal should be rejected.
17. The Commission in its written submission has submitted
that as regards consumption of stores and spares, the
Commission has allowed Rs. 20.45 lakh as against the claim of
the appellant for Rs. 56.46 lakh during the year 2002-03. The
appellant is aggrieved by disallowance of Rs. 36.01 lakh. The
Commission has submitted that the amount of Rs. 36.01 lakh
under the head “Consumption of Stores and Spares” was
considered and decided to be allowed by the Commission.
However, the amount was left out inadvertently while passing
the order dated February 05, 2007 in Review Petition No.
47/2006 and that the Commission will take necessary action to
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Appeal No. 131 of 2006
rectify the arithmetical mistake in the order subject to the final
decision of the Tribunal in this appeal.
18. The Commission has further submitted that as regards the
administrative expenses, the appellant is aggrieved on account of
disallowance of expenses towards compensation for land
acquisition amounting to Rs. 3.45 lakh in terms of the Award
passed by the Learned District Judge. It is submitted by the
Commission that while considering the Review Petition No.
47/2006, the Commission had decided to allow the
administrative expenses for payment for compensation of Land
under the head “O&M expenses”. However, the same was
inadvertently left out while passing the order dated February 05,
2007 in the said Review Petition. The Commission will take
necessary action to rectify the arithmetical mistake in the order
subject to the final decision of the Tribunal in this appeal.
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Appeal No. 131 of 2006
Analysis and decision
19. The appeal lies in a narrow compass. The appellant is
aggrieved by the order of the Commission whereby the year
2005-06 for Uri Project has been considered as an year of zero
loan payment and therefore, the Commission has considered it
as a case of moratorium. In view of this the Commission,
considering its Regulations, has considered that depreciation
amount for the year should be taken as the loan repayment for
the purpose of tariff. However, factually in the case of Uri
Project even during the year 2005-06 a repayment of
Rs. 14408.49 lakh has been made by the appellant as evidenced
in Form 13A submitted by the appellant to the Commission.
Hence the year 2005-06 cannot be treated as a year of
Moratorium. Nor can the depreciation amount be taken as loan
repayment.
20. We also note that the benefit of refinancing of loan has
been passed on to the beneficiaries in the tariff period April 01,
2004 to March 31,2009 as the interest on loan is @ 9.55% M-
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Appeal No. 131 of 2006
Series Bonds instead of 15-17% interest rate on Government
loans which would have continued during this tariff period if the
refinancing of Government loan was not done by the appellant.
21. The Commission in the impugned order has stated that
Government loan amounting to Rs. 29847.46 lakhs has been
refinanced with M-Series Bonds and WMB loan has been
refinanced with Bank of Maharashtra N-Series Bonds and WCDL
and that as this refinancing has been found to be beneficial to
the beneficiaries, the effect of refinancing has been considered
notionally in 2001-04 tariff period to arrive at the cumulative
repayment as on March 31, 2004 and cumulative
depreciation/AAD. However, the actual tariff for the period
2001-04 has not been re-determined. Respondents have pointed
out that this is not equitable. However, that the order for 2001-
04 was not challenged by the respondents.
22. In view of the foregoing analysis we allow the appeal and
direct the Commission to re-determine the tariff of the appellant
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Appeal No. 131 of 2006
for Uri Power Station in the light of the observations in para 21
above correcting the errors and omissions conceded by the
Commission in its written submissions.
23. No order as to costs.
24. Pronounced in the open court on 28th day of August, 2009.
(H.L. Bajaj) (Mrs. Justice Manju Goel) Technical Member Judicial Member